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Thursday, 30 July 2015

Asian shares, dollar up on Fed's optimism; earnings in focus

Asian stocks tiptoed higher on Thursday and the dollar consolidated recent gains after the U.S. Federal Reserve painted a relatively bright picture of the economy, but a deepening sell-off in commodities kept gains in check.

Prospects of stronger U.S. growth in coming months lifted Asian stocks in early trade, with Japan's Nikkei .N225 up 1.1 percent and Australian shares adding 0.8 percent. But South Korean shares .KS11 fell 0.7 percent.

Financial spreadbetters expect Britain's FTSE 100 .FTSE to open 0.1 percent higher, Germany's DAX .GDAXI to open up 0.2 percent, and France's CAC 40 .FCHI to open up 0.1 percent.

Gains were muted before the earnings season kicks off at full throttle next week, when companies are broadly expected to post disappointing results on the back of weak economic data in recent months, particularly for trade.

Gavekal strategists noted that Asia’s trade performance had been disappointing in recent months. After a two-year post-crisis rebound in 2010-2011, export growth in the region has slowed to an annual average of 7.5 percent in U.S. dollar terms and 6 percent in volume terms this year compared to U.S. dollar growth rates of 30 percent in the years before the crisis.

"The markets still think that the world's economy remains fragile, given a fall in Chinese shares and commodity prices. The Fed surely doesn't want to screw up its exit from zero rates by hastily moving and hitting already fragile commodities market and the world economy," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

Subdued external demand is expected to weigh on corporate earnings, with CLSA strategists expecting first-half earnings growth at Hong Kong and Chinese companies to be weak and guidance for the third quarter unlikely to be better.

Chinese equities, already a third lower than their June highs, slipped on Thursday after state media reported that banks were investigating their exposure to the stock market from wealth management products and loans collateralized with stocks.

"The market has been struggling to hover above the water with investors taking to the sidelines to see if stability can be maintained in the market," said Ben Kwong, a director at KGI Asia in Hong Kong.

On Wall Street, U.S. stocks rose broadly on the Fed's optimism and strong corporate earnings, with the S&P 500 .SPX rising 0.7 percent to 2,108.57.

After a two-day policy meeting, Fed officials said they felt the economy had overcome a first-quarter slowdown and was "expanding moderately", leaving the door open for an interest rate increase in coming months.

Commodities extended their decline, with copper CMCU3, considered a bellwether for global economic activity, trading near a six-year low at $5,322 a tonne.